You also joined Andreessen Horowitz as a special advisor, saying you wanted to contribute as a thinker, not just as a door opener. What is it you’ve been thinking about?
What I’ve enjoyed the chance to do is to think about how basic economic principles of pricing—pricing relative to marginal cost, price discrimination—can help you think about pricing different speeds for being able to download a movie, for example. These principles go back to the time when people were thinking about how first-class train service, second-class train service, and third-class train service should be priced in 19th-century France. The idea that the world always changes, but there are certain economic principles that are timeless and can be applied in new contexts, is something that’s very interesting for me.
How much faster is money moving today than when your career started?
When I started traveling, you had to carry traveler’s checks. If you were unlucky enough to run out of cash, you had a big problem and you had to go to an American Express office and hope for the best. Today, money can get transferred from any part of the planet to any other part of the planet, essentially instantaneously. I think for the most part that’s a positive thing. People can see prices more easily, they can act on their desires more efficiently; friction is rarely a good thing.
But I think we do need to be working to create regulatory systems that are as modern as the markets. And in some ways, what the 2008 crisis showed us is that our regulatory system hadn’t fully kept up with all of the financial innovations that were taking place, and that’s something that’s got to be a priority for all of us in the economic and financial area going forward.
One example of financial innovation is a currency system called Bitcoin, which is a way of digitizing money without control by one central authority. Can money exist without government and monetary policy?
Conceptually, money can exist without a central authority. The United States only got a central bank in 1913, and we were a country with a functioning economy before 1913. There are also private issuers of things that function very much like money—think about Crimson Cash here at Harvard, or American Express traveler’s checks.
Bitcoin is one of many innovative technologies that are going to seek to take friction out and provide services to people. You can make a priori arguments about how it will work very well, and you can also raise concerns a priori. And I think if we know anything about new technologies, you just have to wait and see what happens in the marketplace. Everyone thought New Coke would be better than old Coca-Cola and take things by storm, and [former IBM CEO] Tom Watson thought there was only demand in the world for 10 or 12 computers. And so I think history teaches that you can’t really forecast which kinds of innovations will ultimately become networked and get to scale.